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December 17, 2012

BofA-Merrill New Comp Plan: Good News, Bad News for Advisors

Bonuses on net new assets in 2013 are tied to fee-based flows, loans and similar products

On the plus side, retiring advisors can potentially receive between 100% and 160% of their trailing-12-month production over a four-year period, which is up from 70% to 80%. Also, the pay grid stays the same.

However, a new emphasis on flows of certain types of asset flows–namely fee-based assets rather than overall net new money–is not likely to make all of the 17,000-plus Thundering Herd happy.

“There is a revision to the bonus plan that could make it actually harder to earn the initial amounts,” said compensation consultant Andy Tasnady, in an interview with AdvisorOne. “Not all assets count, namely non-fee based assets like cash, bonds and equities that are not in certain wrap arrangements.”

(The number of BofA-Merrill financial advisors stood at 17,533 as of Sept. 30, which is down one from the second quarter but up 439 reps from a year ago. These figures include financial advisors in the mass-affluent Merrill Edge platform and others in BofA’s Consumer & Business Banking segment, which totaled 1,457 in Q3’12; 1,383 in Q2’12; and 1,032 in Q3’11.)

While lending is now part of the bonus program, those advisors who aren’t likely do more borrowing “could find it harder to hit” the new targets, Tasnady explained.

BofA-Merrill says it is focused on “strategic [asset] flow growth by broadening and strengthening client relationships and utilizing the full capabilities of Merrill Lynch and Bank of America.” This includes boosting fee-based assets, banking, lending and other annuitized products to “align client, advisor and shareholder interests.”

Total client balances in BofA’s Global Wealth and Investment Management rose 3% in the prior quarter to $2.3 trillion in the third quarter, led primarily by market gains, as well as gains in deposit balances, long-term assets under management flows and loan balances.

Asset flows to advisors in the third quarter were $3.83 billion, down from $3.99 billion in the second quarter of 2012 but up sharply from $1.93 billion in the year-ago quarter. For the first nine months of 2012, new assets totaled $15.64 billion vs. $10.19 billion in the same period of 2011.

The new growth awards will be available to those advisors who raise assets flows by 10% or more and by at least $5 million. For the first $10 million, the reps will get a bonus of five basis points (or 0.05%). And they get 10 basis points (or 0.10%) for over $10 million and up to $50 million.

FAs topping $50 million in new “strategic” asset flows earn three basis points or 0.03%. Previously, new-asset bonuses were capped at this level.

“The cap of $50 million was hard to hit,” said Tasnady. “But those going north of that now get a nominal amount, so that is at least some reward if you are lucky enough to bring in a $1 billion client.”

Other experts point out that this fee-based push is the name of the game in the industry these days.

“Transactional business is acceptable, but it’s not where Merrill and the other wirehouses are headed,” explained Mark Elzweig, an executive-search consultant, in an interview. “These payout changes don’t involve major cuts, but really minor tweaks–because it’s too competitive a marketplace. What they’ve opted to do, instead, is to add incentives for advisors to grow their recurring, fee-based revenue.

Elzweig is more upbeat about how the fee-based incentives will go over with reps. “These kinds of programs make sense and should be well received by advisors,” he said. “Wirehouses like advisors to do off grid product like providing loans to clients. It's profitable business for the firm and creates a long-term bond between the client, firm and

For advisors leaving after age 55, Merrill has increased the “phase-out” bonus, which should encourage advisors to stay until they retire. “That’s a good thing, and something that most firms are concerned about,” Tasnady shared. “It should pay for itself, and is positive for both the firm and for advisors.”

This should be especially good news for advisors who are about five years or so from retirement, he notes, and should motivate them to remain with Merrill.

“It's critically important that firm provide advisors with sufficient rewards to hand off their business to younger advisors at their firm,” said Elzweig. “Otherwise, advisors will choose to monetize their own retirements by hitting the bid elsewhere. We're working with some people like that right now.”

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